Mortgage lending at nine-year low

Few doors have opened for first-time buyers during 2010

Total UK mortgage lending fell to its lowest level for nine years in 2010, new figures show.

The value of mortgages advanced stood at £136.3bn, which was down 5% from £143.3bn in 2009 and the third year in a row that the figure has fallen.

Lending was just over a third of level seen in 2007, revealing the extent to which the UK property bubble has burst.

The Council of Mortgages Lenders (CML) also said it expected interest rates to rise sooner rather than later.

The monthly data shows that mortgage lending dropped in December.

The £11bn advanced during the month was 6% down on the previous month. It was also 18% lower than the same month a year earlier, when some buyers were beating the end of the stamp duty holiday.

The CML added that some home loans had been increasing in cost recently, threatening to continue the dampened demand from buyers at the end of 2010.

The CML has previously predicted that the number of homes repossessed, and the amount of borrowers getting into arrears on their mortgage payments, would both increase slightly in 2011 compared with last year.

The group accepted that the latest inflation figures – which showed a jump in the cost of living in December – could prompt the Bank of England to raise interest rates “earlier than expected”.

However, CML economist Peter Charles said that the lenders’ group did not expect the Bank rate to rise above 1%. It currently stands at a record low of 0.5%.

Although this had already caused prices of fixed-rate deals to start to rise, there would not be a sudden surge of arrears problems, he said.

“Money market rates have recently moved higher in anticipation of a rise in base rate and some lenders have recently reflected these increases in their product pricing. Against this backdrop, consumer demand may be weaker than we would otherwise have expected,” he said.

“Higher interest rates will also hit the budgets of existing borrowers, although the expected modest rises in base rate will result in a relatively small proportionate rise in monthly payments for most mortgage holders.

“Consequently we believe there will be little change in the level of arrears this year.”

The subdued state of the property market in 2010 was underlined by the latest figures from HM Revenue and Customs (HMRC).

Mortgage demand dipped at the end of 2010

Sales of residential properties in the UK for the whole of the year totalled 885,000, which was 27,000 more than the previous year, but still just over half of the peak in sales recorded in 2006 and 2007.

Sales in December of 2010 fell by 2,000 compared with the previous month, to 75,000.

The final month of the year is generally quiet for the housing market in the UK, as people concentrate on Christmas.

“December is always a quiet month but this was a quieter December than usual,” said Paul Sabbato, a director of broker First 4 Bridging.

“There is no doubt that many people who may have been considering buying a couple of months ago have shelved their plans until there is more clarity on when, and by how much, rates will rise.

“Higher inflation looks like it is going to force the Bank’s hand and if that’s the case then borrowing will come under further pressure.”

He added that people’s worries about jobs and rising living costs were putting them off buying a home.

First-time buyers have been among the hardest hit by constrained mortgage lending.

A report by the Chartered Institute of Housing estimated that 100,000 potential first-time buyers who had no financial help from their parents had failed to get on the property ladder last year.

It argued that the pendulum had swung too far towards the requirement for a large deposit.

Meanwhile, the amount charged in rent has risen for much of the year, according to various surveys.

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